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How “Good Things Happen to” Costco
Talking to a reporter, Costco’s chief executive, Craig Jelinek, had a habit of stating the conditions in which “good things will happen to you.” To summarize his retail company’s strategy, Jelinek said, “As long as you continue to take care of the customer, take care of employees, and keep your expenses in line, good things are going to happen to you.” Indeed, good things have happened to Costco, which stands out from other retailers for remaining profitable and avoiding layoffs during the Great Recession and beyond.
Although Costco has an online presence, the company is mainly a chain of warehouse stores that charge consumers a membership fee to enjoy rock-bottom prices. By ordering in bulk packages, displaying goods on pallets and steel shelving, and setting markups just a sliver over costs, Costco lures shoppers with low prices. It makes most of its profits from selling memberships. Consumers like the arrangement: the renewal rate is nearly 90%.
Costco’s commitment to shaving expenses carries over to its plain headquarters but not to the way it treats employees. Since the 1980s, Costco has increased pay rates every three years, keeping compensation above industry norms. Even during the financial crisis in 2009, Costco announced raises. On average, a Costco worker earns $20.89 an hour, compared with $12.67 for an hourly employee working full-time for Walmart, which runs Costco’s chief competitor, Sam’s Club. In addition, Costco reported that 88% of its employees had company-sponsored health insurance plans, compared with Walmart’s statement saying “more than half” of employees were covered. Costco also has resisted layoffs. For example, as other companies downsized store workforces and installed self-checkout lanes, Costco determined that its employees were more efficient and better suited to its customer service goals.
These decisions assume that satisfied employees will build a stronger company by being more committed to the organization and less likely to quit. Costco has a low rate of employee turnover (the percentage who quit each year): 5% among employees with at least a year on the job, or about one-fourth the industry average. The company therefore spends less to recruit and train new employees, and employees have more experience they can apply to providing great service. Costco also uses store employees as its main source of management talent. It pays tuition for hourly workers to pursue their education and move up the corporate ladder.
Costco’s executives credit the treatment of employees with helping the company thrive. Its sales and stock price have been surging over the past few years. The company has been expanding in Europe and Asia, where it hopes its commitment to employee well-being will serve the company equally well.
1. In what ways does Costco meet the criteria for a “sustainable” organization?
2. What would you describe as Costco’s basic strategy as a retailer? How do its human resource practices support that strategy?